Larger rounds of funding raised by startups are becoming increasingly rare. However, for the new companies working on the future of energy, the market is surprisingly strong.
The venture’s slowdown and late-stage freeze aren’t stopping companies looking to reinvent energy from raising huge rounds. Given what we’re seeing around the world, it’s a welcome development, even if it’s a decade or more too late.
Activation
Nine-figure rounds are often called “mega-rounds” because of their sheer weight. During the first two months and early days of March last year, about 12 deals met our “energy” criteria, tracking companies working in electricity generation and distribution using Crunchbase data. This includes projects such as solar power generation, batteries and EV charging. However, we did not include OEMs that manufacture electric vehicles such as Lucid or Fisker in our analysis.
From early 2023 to March 4 of that year, 11 offers met our criteria. Of this group, seven were based in China. During the same part of the first quarter of 2024, we saw 12 offers that met our standards. However, this time only one was a Chinese company.
A reshaped global venture capital market
As the global venture capital market adjusts to persistently higher interest rates, the flow of capital to tech startups has slowed. The slowdown in private market investment in private technology companies has been particularly pronounced in the later stages of startup creation, thanks to a constrained exit environment and less discernible public market valuations for many software companies.
Late-stage dealmaking has changed so much in recent quarters that it’s easy to forget how bullish private market investors have been in recent years. CB Insights mentionted that from Q1 2019 to Q4 2022, each quarter saw more than 100 nine-figure deals or seed rounds valued at $100 million or more. In contrast, the fourth quarter of 2023 had just 78, the worst result since at least the end of 2018.
More recent figures highlight a continuing trend. A TechCrunch analysis of Crunchbase data found that from January 1 to March 4, 2023, about 115 rounds met our criteria for nine-figure private market deals (excluding private equity, all post-IPO deals, some debt rounds, etc. ). During the same period this year, the number dropped to 75.
If the number of energy-focused big rounds has been nearly constant year-over-year, why emphasize the metric? Because large energy-focused rounds made up a larger portion of the nine-figure deals TechCrunch analyzed, from just under 10% in the 2023 period we’re looking at to 16% in the same part of 2024. That’s more than a 60% gain in relative share , a huge shift for any sector in just one year.
That’s why the 12 venture capital rounds we saw in the energy sector stood out to us like a beacon. There’s not that much to see, period, making the density in a field not as well known to be in favor (as with artificial intelligence) all the more remarkable. And with a massive geographic shift going on at the same time, something is clearly heating up in the energy earth.
Into the power wave of energy
In 2023, China dominated the energy grand rounds, with the most money going to makers of solar panels and battery materials. Both are areas that China has dedicated to with incentives and government funding, and as a result, the country has dominated the market for both. In 2021, 75% of the world’s solar modules and a whopping 85% of all cells they were made in China, according to the International Energy Agency. As such, the new funding was less about investing in a promising market than about crushing competition.
The same could be said for battery materials. Chinese companies own 75% of the toner supply chain, which includes everything from mining to final anodes, according to Benchmark Minerals Intelligence. And yet two Chinese companies attracted a total of $380 million in investment in the first quarter of 2023.
Fast forward to this year and the picture in the energy majors looks dramatically different. Diversity is the name of the game. Only one Chinese company cracked the top spots, with the rest almost equally balanced between the US and the EU. This is due to industrial policy: The US Deflation Act and the EU Green Deal offered hundreds of billions in incentives to manufacturers and suppliers to set up onshore operations. In return, companies have invested hundreds of billions more. These large rounds are a reaction to market trends, suggesting that the renewal of key parts of the climate technology economy will continue for years to come.
Geographical diversity is only part of the picture. Where solar and battery materials took the lion’s share of the big deals in 2023, the same round figures this year have been spread across a range of technologies. Geothermal energy, industrial heat, electronic fuels, battery recycling, electric vehicle charging, lithium mining and geological hydrogen are all elements. Even heat pumps, a decades-old technology, received an injection of €145 million — that’s how promising this market has become.
The wide range of industries represented this year suggests that many previously early-stage companies have conquered their scientific or technical risks and begun their journey to commercialization. Investors seem certain to succeed, too, happy to take on a part of the startup journey that offers smaller, if more likely, returns. The IPO window is still probably a few more years away for these companies, but check sizes suggest investors can see it on the horizon.
With the ocean at record temperaturesNews about sea ice looking dark and droughts are hitting hard worldwide, it’s a good time to sit back and think about what we’re doing on our little planet. The above investment trends are welcome, but with carbon emissions still setting records, we still pour cups of water on a fire at home. More and faster, please.
